I have created a very simple model in excel to look into this...

I have created a very simple model in excel to look into this company a bit deeper.
First time I have done it so I will be interested to see how close to the mark the simple model gets me.

All in all, first half performance fee payments will mask very ordinary second half performance when full year results are released.

Calculating the likely performance fees for the second half:
Australian Fund: 10% to December so performance fees calculated on the additional 3%= $1.035m ex GST
Asian Fund: High water mark reset at December and is negative for the next six months so =$0 performance fee
Select International Fund: Negative for 6 months = $0 performance fee

Global Alpha Fund Negative for 6 months = $0 performance fee
Small cap fund: Negative for 6 months = $0 performance fee

Asia, Select, Global and Small Cap funds are now all below high water marks so performance needs to reach the high water mark that the funds were reset to at December 31 2017 and then achieve respective hurdles for performance fees to be paid in future.

With poor relative performance inhibiting the chance of renewed inflows, this company is only one performance period away from being unprofitable. i.e. performance needs to hit at least 6% for the half for performance fees to kick in and preferably for the Australian fund with the highest FUM.
Trying to protect capital on the downside by holding cash is going to make this more difficult so it's a bit of a balancing act!

Breaking down the numbers:

This half on very simplified assumptions:

Management fees of $2.777m, performance fees of $1.035m, add interest/other of (say) 200k brings gross revenue of $4.01m for the half.
Using a static first half expense of $3.6m, brings about a 2H Gross Profit of $412.5k and Net Profit of $299k (first half tax rate was 27.5%)
This equates to .0012 cps for the year (using 244.2m shares on issue)

Add that to first half EPS of 2.14cps (reported 2.17cps adjusted for higher shares on issue) brings total EPS of 2.26 for the full year,
At 14 cent share price that's a trailing full year P/E of 7

But based on 2H earnings, if they were the same in the coming year, forward P/E would be 57.

If there were no performance fees in the next year and FUM and current expenses stayed the same, the company would make a loss of $1.65m.
So at current levels of FUM the company is highly reliant on performance fees.
They will need to reverse the trend of outflows quickly.

I'd be steering clear of this one for now.





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